Economic Updates

Weekly Report – October 12, 2015 – Los Angeles by the Numbers

As a reminder the L.A. Coalition is hosting Gene Sperling from Sperling Economic Strategies on Tuesday, October 13, from 8:30 a.m. to 10 a.m. at Hillcrest Country Club, 10000 West Pico Boulevard, Los Angeles 90064. A continental breakfast will be served.

In preparation for this meeting I wanted to share some ​insightful​ data points:

Los Angeles by the Numbers

• Since 1970 the population of the City of L.A. has increased by 157 percent to 3.9 million and the population of L.A. County increased by 40 percent to 10 million. L.A. County’s unemployment rate is 7.5 percent and the City of L.A.’s is 7.9 percent.
• Of the City of L.A.’s three million residents of working age (16-65 year old), two million are able, willing and looking for work. Almost 8 percent of that population (160,500) are unemployed and 1.1 million are not actively looking for work, i.e. – students, retirees, stay-at-home parents and workers who have stopped seeking employment and by some estimates 14 percent of the workforce operates in the informal economy).
• On any given day more than 138,000 job opening exist in the region.

Labor Force Participation Rate – The Unemployment Rate is Misleading

• The proportion of working-age Angelenos who are employed or actively seeking employment – known as the labor force participation rate is the smallest it has been since the 1970s. In 2013 it was 62.0 percent in the City. Participation rates of older workers (aged 55 and over), while lower than average, has been rising since 1980. Workers ages 65 and older are the only demographic now seeking work in greater numbers than before the recession.
• ​T​he percentage of Latinos in L​.A. ​has increased dramatically in the last two decades, yet the Hispanic workforce​ has grown more slowly than the share of Hispanics in the total population
• The rising number of workforce dropouts has troubling implications for the region’s competitiveness, entitlement programs, consumer spending and more. A shrinking labor force could force employers to recruit outside the state, raising immigration and visa issues. Many who have quit seeking work are relying on government disability benefits. From 2000 to 2012, the number of people filing disability claims soared 80% to 9 million from 5 million – a much faster rate than the previous decade.

​Challenges

• African-Americans in Los Angeles face the highest​ ​unemployment rate​ ​-​ ​11.4​ ​percent.
• More than four in 10 unemployed adults in Los Angeles​ ​have been out of work for more than six months.
• While the official poverty rate for Los Angeles County is​ ​19​ ​percent, the California Poverty Measure, which adjusts for​ ​housing costs,​ ​shows​ ​26​ ​percent​ ​of Los Angeles residents living​ ​in poverty – making it the poorest county in California.
• One out of four adult residents lacks a high school​ ​credential, more than half of whom left school before​ ​ninth grade.
• Forty three percent​ ​​of the Hispanic population lacks a high school​ ​credential, compared with 6​ ​percent​ ​of white residents,13​ ​percent of African-Americans, and 13​ ​percent​ ​of​ ​Asian and​ ​Pacific Islanders.

Job Growth Opportunities

• Between 2014 and 2019, the economy is expected to add 322,000 new jobs in nonfarm industries across L​.​A​.​County, and 126,000 new jobs in the City of L​.​A​.​
• The largest number of overall openings will occur in the largest occupational groups, such as office and administrative support occupations, food preparation and serving occupations, and healthcare occupations (practitioners, technicians and support).
• More than one-third of the projected openings for the next five years require workers without a high school diploma and no work experience. Another 29 percent will require workers with a high school diploma (or equivalent) and with no work experience.

Bright Spots

• Twenty-one percent of the 4.8 million jobs in L.A. County – 1 million jobs – are high-wage, high-growth middle-skill occupations. These jobs pay a median hourly wage of $29.75 and are expected to grow by 6 percent by 2019. L.A.’s healthcare and global trade and logistics sectors are growing steadily, are massive in scale and offer significant employment opportunities.
• The Largest and Fastest Growing Economic Sector in L.A. is Healthcare 596,000 jobs and projected employment growth of 14 percent by 2019. Twenty-three percent (137,000) will be middle-skilled jobs at a median hourly wage of $37.51 Thirty-six percent will be physical therapy and twenty three percent medical assistant. Global Trade and Logistics job growth – 79,000 middle-skill jobs – 7 percent projected growth through 2019. Information and Communications Technology jobs will also grow: Web Developer positions will increase by 32 percent by 2022. Computer user Support Specialists will increase by 25 percent, and Audio and Video Equipment Technicians will increase by 15 percent.
• Los Angeles is Working to Become the Hub for the Biotechnology Industry
  • A. City Council Member Mitch Englander’s motion to analyze the estimated fiscal and economic impact of reducing or eliminating business taxes on biotechnology firms in Los Angeles was heard in the Budget and Finance Committee and was passed unanimously onto the full Council. The Committee instructed the CAO, CLA and Office of Finance to report back to the committeewithin 45 days with a proposed definition of “biotechnology firm”; provide current City of Los Angeles information on existing biotechnology firms and report back on examples of incentives that other cities have used to attract biotechnology firms. The impetus for my motion was a compelling article written by USC President, C. L. Max Nikias who wrote that even though universities in Los Angeles County graduate more than 5,000 graduates in biotechnology-related fields each year, compared with 2,800 in San Francisco-Oakland-Fremont, San Francisco attracted $1.15 billion in biotechnology investment in 2013, compared with only $45 million here. We are educating northern California’s workforce and those people are creating jobs and revenues there, and not here. The 2014 Battelle Report on Advancing a Master Plan for Biosciences Development in Los Angeles County sites “supportive business tax and regulatory policies” as one of the 8 critical ingredients for building a critical mass in the biosciences in states and regions. Enacting my motion would be a huge step forward in attracting the biotechnology investment we would like to see right here in Los Angeles.
  • California State University Los Angeles – Biosciences: Cal State L.A. was awarded a $3.2 million grant to be used to construct a new laboratory building on campus. But unlike academic laboratories, the Cal State L.A. biosciences incubator will provide laboratory space for startup scientific companies. That model has been successful in the San Francisco Bay Area and elsewhere in the United States, but not yet developed in L.A.
• ​California State Polytechnic University Pomona and California State University Northridge were ranked 4th and 5th respectively in a recent report (http://www.edsmart.org/colleges-advancing-americas-progress) highlighting colleges that are making it easier and more affordable for low-income students to attend college and improve their upward social mobility.

Big Picture Thinking – Middle-Class Job Creation

• Reid Hoffman of Silicon Valley contends that​ ​the networked economy is the new model. Hoffman likes to cite a statistic from a United Nations paper on sustainable development goals: the global economy will need six hundred million new jobs over the next twenty years, and existing business can provide only ten to twenty million of them. The rest, he claims, will have to come from startups, so societies everywhere will have to reorient themselves significantly in order to make entrepreneurship easier. He states, “I’m trying to get politicians to understand that solving this problem is about facilitation of a network, as opposed to”—sarcastically—“the New Deal.”
• Not everyone in Silicon Valley is as sanguine about the technology-enabled economic revolution. There is an ongoing conversation about the uncertain economic future for middle-class and working-class Americans who don’t have technology skills. Joe Kraus, an old friend of Hoffman’s who works for Google’s venture-capital division, told me, “My instinct is that creating the valley elsewhere hasn’t been successful. It would be presumptuous to say, ‘Of course it will work elsewhere.’ I just don’t know.”
• James Manyika, McKinsey’s Silicon Valley Office is looking at the same issues: The creation of Middle class jobs. Manyika was one of a roster of people, including five Nobel Prize-winning economists, who, in June, signed a statement called “Open Letter on the Digital Economy,” (http://openletteronthedigitaleconomy.org/) which called attention to the problem of dramatic technological advances and stagnant growth in income or wages for most Americans. The letter called for an ambitious program of new research and changes in the policies of government and business…Manyika states “We cannot ignore this problem. Right now, everybody’s punting. We know the share of income that goes to wages is a declining portion, compared with capital expenditures. What does that mean for jobs? Entrepreneurship is part of the answer. Mass-scale entrepreneurship. Before you even get to A.I.”

Social Skills Becoming More Important in a Technology World

Nicole Torres: Harvard Business Review

Automation anxiety reached new heights in 2013, when Carl Benedikt Frey and Michael A. Osborne, researchers at the Oxford Martin School, published a paper estimating that 47% of all U.S. jobs were “at risk” of being computerized over the next two decades. Although the jury is still out about robots stealing jobs, the pace at which AI and deep learning technologies have been advancing isn’t ebbing concerns over a future of disappearing work. As machines increasingly perform complex tasks once thought to be safely reserved for humans, the question has become harder to shrug off: What jobs will be left for people?

A new NBER working paper suggests it’ll be those that require strong social skills — which it defines as the ability to work with others — something that has proven to be much more difficult to automate. “The Growing Importance of Social Skills in the Labor Market,” shows that nearly all job growth since 1980 has been in occupations that are relatively social skill-intensive — and it argues that high-skilled, hard-to-automate jobs will increasingly demand social adeptness.

This doesn’t mean that analytical skills have become less important. In the paper, David Deming, an associate professor at the Harvard Graduate School of Education, explains that since the ‘80s, job and wage growth has been strongest in occupations requiring both high cognitive and high social skills. He builds largely upon the work of MIT economist David Autor, who’s studied the effects of technological change on the U.S. labor market, and that of James Heckman, an economist at the University of Chicago, who’s studied the importance of noncognitive skills — as well as older research on how the labor market has increasingly rewarded people who are both good at math and working with others (see “It’s Never Been More Lucrative to Be a Math-Loving People Person”).

What’s most surprising — and you can see this in the chart below — is that jobs involving a lot of math, but less social interaction, have shrunk in terms of total share of the U.S. labor force over the past three decades. So it still pays to be good at math in today’s labor market, but it’s often no longer enough. “The days of being able to plug away in isolation on a quantitative problem and be paid well for it are increasingly over,” Deming told me. “You need of have both types of skills.”

The paper explains three things about the growing importance of social skills: 1) social skills are valued in jobs across the entire wage distribution (as seen in the chart), 2) social skill and cognitive skill complement each other, and 3) jobs that require low levels of social skills are also likely to be routine jobs (filing clerks, factory jobs) at high risk of automation. Deming studied changes in work tasks using data from the Occupational Information Network (O*NET), a survey conducted by the U.S. Department of Labor that asks people about what they do on the job. He created a measure of social skill intensity — or the extent to which a job requires someone to have social perceptiveness, to negotiate and coordinate with others, and to involve persuasion. He made similar measures to determine the extent to which a job relied on routine tasks, math-oriented tasks, and service work, and then he divided jobs into these four categories.

The data show that social skill tasks grew by 24% from 1980 to 2012, compared to only about 11% for math-intensive tasks. While the latter has declined since 2000, the importance of social skills has grown by about 2% through the aughts. And jobs characterized by routine work have continued to decline.

So why are social skills so prized in today’s labor market? One reason, Deming explains, is because computers are still bad at simulating social interaction. And something that’s become more important in the modern workplace is being able to play off a team member’s strengths and adapt to changing circumstances. “If it’s true that work is becoming more team-based, and there’s a lot of evidence that it is, then it ought to be true that people who are more able to work with others will be more valuable,” he told me. “Because the thing about computers, technology, and machines is that they’re very good at the specific things they’re programmed to be good at, but they’re not flexible.”

To illustrate the value of this flexibility, Deming developed a model. It applies the logic of the Ricardo example of comparative advantage — one of the fundamentals of trade economics — to a team setting, so instead of countries trading goods, he conceptualizes workers trading tasks. The general idea of the model (he presents a different, much more thorough story in the paper) can be simplified as such:

Two colleagues, Dan and Sarina, have to write up a report. Dan is a stronger writer; Sarina is better at working with data. Since Dan’s comparative advantage is writing, and Sarina’s is data analysis, in order to work together efficiently, Dan does one thing, Sarina does another. This way, it takes them less time or effort to produce the same report. But then they bring in another coauthor, Nick, and he is even better at data analysis. Sarina would have to adjust and farm the analysis to Nick, so that she could do something else, like conduct more research or meet with clients.

Part of what being good at working on a team means is being able to adjust when your comparative advantage changes. Machines aren’t quite this agile (yet), whereas people can be. Social skills helped Sarina adapt when she needed to, and the team was more productive because of it. “The model is trying to capture this idea that being a good team player is valuable to employers,” Deming explains. “It’s trying to provide a rationalization for how being able to work with others might make someone more productive, and why employers would be willing to pay a higher salary to someone who has these social skills.”

Still, the model is conceptual. Deming didn’t have actual data on how people allocated tasks within a team inside a firm, and you can speculate about other factors at play. Social skills might not necessarily make you more productive on a team — or what we think of as social savvy could be an extension of cognitive skills (i.e., those with high IQ are better able to collaborate on teams). Perhaps Nick should have actually replaced Dan, since he’s also a better writer, but Dan had a better relationship with the boss, and that’s what cemented his role. The picture gets messier when you throw in real-world office politics.

Deming did turn to data from the 1979 National Longitudinal Survey of Youth (NLSY79) to test if his model worked. The survey has tracked respondents from adolescence into their mid 50s, measuring things like test scores, sports or club participation in high school (a proxy for social skills that’s been shown to predict labor market outcomes later on), and adult employment and income. This data let him measure the difference in wages for people with (self-reportedly) high social skills versus people with low social skills, across occupations.

What he found was that people who have higher social skills, as measured by the survey, earn more money — even after controlling for things like their education, their cognitive skills (measured by standardized scores), what type of job they’re in, etc. — than those with poor social skills. There seems to be a positive return to social skills in the labor market, according to the data, and that return is relatively greater when people are in jobs that require more interaction with others.

Again, this measure of social skills is not perfect, but Deming argues that a better measure would likely make the results stronger. Regardless, more work needs to be done in order to understand what it is about people skills that makes one more valuable in the labor market.

The paper also touches on an interesting correlation between two labor market trends: social skills becoming more important and the narrowing of the gender gap when it comes to jobs and wages.

Deming admits it’s speculative — he doesn’t have direct evidence of differences in social skill by gender — but he cites other studies that show women tend to score higher on emotional and social intelligence tests. “It’s more of a conceptual leap,” he said. “But I don’t think it’s an unreasonable one.”

The call for social skills, “soft” skills, emotional intelligence, and the like, isn’t something new. Employers are constantly stressing the need for workers who can collaborate and communicate on teams.

Meanwhile, the evidence on how automation effects employment remains inconclusive. (Other studies have posited that robots might be improving productivity, rather than costing jobs.) But while it might be too soon to start bracing for a dystopian no-jobs future, it’s not too early to think about whether people are learning the right skills they’ll need to succeed in tomorrow’s workforce.